Enable USDT as collateral on Aave v3 on Avalanche
We voted NO: We had a very productive chat with Luigi and were happy to learn a bit more about this proposal. Our main reasoning for this was the we believe the LTV is too high in current market conditions.
Our main reasoning was this: 70% LTV lets users effectively 1/(1-0.7)= 3.33 leverage if they were to loop their USDT. In times of high FUD in the past, USDT has dropped 6%+ for extended periods of time. With this high of leverage, and at a 70% LTV, substantial risks of bad debt and further other asset markets being under strain might arise.
This is why we believe if USDT were to be added as collateral, we should start off with a 20% LTV before upping that number in the future if things go well / more reserve transparency is provided.
[ARC] Risk Parameter Updates for Aave V2 ETH 2022-11-17
We voted YES: Voting yes as we believe these are good models and in line with our prior risk parameter update decisions.